Fiscal Cliff: What It Means For My 2013 Paycheck?

The financial deadline looms in Washington, with no deal yet made. Check this primer, and share your questions and thoughts.

With Christmas 2012 over, one reality check is the looming "fiscal cliff" deadline just a few days away. On December 31, tax cuts dating to the George W. Bush presidential term are scheduled to expire, and President Obama and congressional leaders have not reached a compromise.

That means tax bills would increase for many middle- and upper-class taxpayers. And that means paycheck withholding for many workers would change, leaving them with less take-home pay in the new year.

Apparently, though, there will be no immediate change in withholding tables, while the situation is unresolved.

According to John Tuzynski, the IRS’ chief of employment tax policy, employers should continue to use 2012 withholding tables and personal exemption amounts until further notice.

And cnbc.com reported that employers are planning to withhold income taxes at the 2012 rates, at least for the first one or two paychecks of the year, said Michael O'Toole of the American Payroll Association.

However, a caveat: If employers don't withhold enough taxes in January, they will have to withhold more later in the year to make up the difference. Otherwise, taxpayers could get hit with big tax bills, and possibly penalties, when they file their 2013 returns.

If no compromise is reached by the president and Congress, the hit will be noticeable in many workers' paychecks.

A taxpayer making between $50,000 and $75,000 would get an average tax increase of $2,400, according to the Tax Policy Center, a Washington research group. If the worker is paid biweekly, that's about $92 a paycheck.

About 75 percent of taxpayers got tax refunds in 2012, averaging $2,707, according to the IRS. And many people rely on tax refunds to pay bills or make major purchases.

Do you think President Obama and Congress will reach a "fiscal cliff" deal? How would a tax increase affect your spending? Tell us your thoughts in the comments below.

Jeff B December 28, 2012 at 03:13 PM
Talking about average increases of $2,400 is grossly misleading. If there is no AMT "patch", that tax for a family making $75,000 in very high tax states like NY and NJ could go up by well over $5,000. The increase would also apply retroactively to 2012, if no patch is enacted, as is customarily done. This would shock the economy. Therefore, I expect the clowns in Washington will eventually enact the patch for 2012.
Natalie R. Krauser McCarthy December 28, 2012 at 03:52 PM
i'm just amazed at how many people really believe a family earning $75K is "wealthy". this would definitely hurt us, and i think it would hurt a lot of families. we aim to never get a refund, since it's our money why would i want to be taxed twice .. and have to wait for it?
Cymru December 28, 2012 at 05:34 PM
I think if Congress was paid like the rest of America (based on performance), this would have been resolved well and on time. According to their current performance, they would be fired! I also agree with Natalie, 75k is not wealthy, maybe in Nebraska! (no offense to the fine folks in Nebraska), however in Westfield its closer to poverty level than wealthy.


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